Gold Report - October

Gold prices fell more than one percent in mid-October and risked further downside, weighed by a strong US dollar and growing expectations for aggressive rate hikes by the Federal Reserve (Fed).

Gold traded at below what had been a key support level of $1,650 per ounce in the second week of October, with further risks of drops in prices seen after higher-than-expected US inflation data earlier that week. “The short-term outlook on gold remains bleak, with analysts turning overwhelmingly bearish on the precious metal as the $1,650 an ounce level breaks,” wrote Anna Golubova of Kitco News on October 14.

“The precious metal is down nearly $90 from its October highs of $1,737 an ounce, with December Comex gold futures last trading at $1,648.70, down 1.69% on the day.”

The fall in gold on October 14 coincided with a 0.60 percent rise in the dollar, in which gold prices are denominated, against a basket of other currencies. A stronger dollar makes gold more expensive in other currencies.

Gold could fall further if the dollar keeps gains upwards momentum from growing expectations that the Fed will have to jack up interest rates by at least 75 basis points at its next meeting, in order to control high inflation.

“From around a 70:30 likelihood of the Fed imposing a 75 basis point rate increase at the November FOMC meeting rather than a 50 basis point one, the odds appear to have risen, as I write, to a 99.3% chance of the 75 basis point rate rise with the remaining 0.7% suggesting a 100 basis point rise,” wrote Lawrie Williams, gold market commentator with bullion dealer Sharps Pixley, on October 14.

The British pound fell, and recent gains made by government bonds were reversed, after UK Prime Minister Liz Truss fired her Finance Minister Kwasi Kwarteng on October 14, indicating that the UK financial crisis, triggered by Kwarteng’s mini-budget in late September, is not yet over, with the focus now on the political survival of Truss herself.

The pound was at $1.1183, down 1.3% on the day after Truss said UK corporation tax would rise to 25%, reversing an earlier plan to freeze it at 19%.

The pound fell because the UK government cancelled only part of its fiscal programme: financial markets had expected a bigger U-turn.

A likely continuing scenario of a weak pound against a rising dollar, buoyed by the prospect of further Fed rate hikes, will make gold costlier to acquire for UK-based gold savers, with more appealing returns from gold sales in sterling terms.

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